July 11, 2014

Wells Fargo’s streak of record profits ends

Wells Fargo’s three-year streak of record profits has come to an end.

Wells Fargo’s three-year streak of record profits has come to an end.

But another streak still lives: the San Francisco bank’s run of growing earnings year-over-year.

Wells reported Friday that it earned $5.7 billion in the second quarter, up 4 percent from the year before but down slightly from the first three months of 2014. The $1.01 per share precisely matched analysts’ expectations.

“Everybody knew it had to happen sometime,” said Marty Mosby, a bank analyst for Memphis, Tenn.-based Vining Sparks.

Wells cited the absence of a tax benefit that occurred in the first quarter for the decline in net income. But the bank also couldn’t increase revenue amid a significant slump in demand for new mortgages. Revenue fell slightly in the second quarter to $21.1 billion, though it beat Wall Street’s predictions.

Shares closed down less than 1 percent, at $51.49.

Wells Fargo maintains its largest employee base in Charlotte, where the bank employs about 22,000. The bank said Friday that its Charlotte headcount has seen a net increase of about 1,500 in the past year across a number of divisions.

Companywide, Wells shed 10,800 jobs since last year, or about 4 percent of its workforce.

Wells, the nation’s largest home lender, went into the second quarter optimistic about the spring home-selling season, with executives pointing to signs of rising mortgage demand. By May, Wells Chief Financial Officer John Shrewsberry said the business wasn’t growing as hoped.

Mortgage banking income did increase some in the second quarter, to $1.7 billion, after months of decline. But the figure is still 40 percent lower than last year.

“We’re not seeing breakout returns to pre-crisis levels of enthusiasm around homeownership,” Shrewsberry told analysts on a conference call Friday. “The purchase market is softer than we thought that it would be.”

That’s forced the bank to rely more heavily on other lines of business. Wells also is the largest U.S. auto lender. That portfolio grew 11 percent, to $54.1 billion, helping the overall consumer loan book grow.

“We are having more discussions with more customers about buying homes, buying autos, investing in infrastructure if you are a business,” CEO John Stumpf said. “So we are a real-economy company.”

That’s helped Wells Fargo maintain steadier results than other big banks with large Wall Street operations, said Shannon Stemm, a bank analyst with Edward Jones.

“The mega banks are also essentially struggling with weakness in their trading results,” she said. “That’s a large impact for those banks that doesn’t impact Wells Fargo.”

Wells was also again aided by a release of reserves set aside to cover bad loans. As the economy improves, banks are able to bring back some of that money, boosting earnings. The bank released $500 million in the quarter.

Stemm said the days of big U.S. banks leaning on those so-called reserve releases might be nearing an end.

Wells was the first of the big U.S. banks to report second-quarter earnings. Citigroup will be the next, on Monday. Bank of America is scheduled to release its results Wednesday. Staff writer Deon Roberts contributed.

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